When you refinance your mortgage there is an option to roll closing costs into loan (this ensures that during signing there is not required to bring any money)or you have the option to come out of pocket to pay for the closing costs. If you chose the second option that means if your closing costs are $4,000 then at closing you will provide $4,000 to close the loan (you deposit the funds with the escrow company).
Things are different for those purchasing a home. Rolling closing cost into the loan is not possible for purchase loans. Most mortgage transactions, refinance and purchase, have closing costs. Closing costs change depending on the mortgage rate you lock in. The lower the rate the higher the closing costs; the higher the rate the lower the closing costs.
Home Closing Costs For A $400k Mortgage:
Let’s say you are buying a home for $500,000 and you are putting down 20% ($100,000). A safe guess on what you’ll need to cover closing costs is $4,000 to $8,000. Keep in mind this is not exact and is being provided so that you have an idea of the funds you might need above and beyond the down payment.
If you are paying points your closing fees will be higher than if you don’t pay points. Also you’ll have things like homeowners insurance, home inspection and pest inspection. If you have a question about closing costs associated with a purchase it’s important you ask the loan officer to clarify further. Looking forward into the next decade I don't think you'll see huge increases in closing costs but small to moderate increases are possible.
No Cost Mortgage Loans:
I’m sure you’ve heard it before; on the radio or on tv, the “no closing cost” option for a new mortgage. There are “no cost” options out there but few lenders offer a true no cost loan. One in which your new balance is solely the payoff amount of your old loan plus daily interest on the new loan.
Daily interest is not a “cost”. Daily interest is the interest you owe from the day the loan funds until the end of the month. In a 30 day month; if you fund on the 15th then you owe interest from the 15th to the 30th. If you fund on the 25th then you owe interest from the 25th to the 30th.
Then when you make your mortgage payment it covers the previous months interest.
We need to make clear that you are not getting anything for free. This is how a no cost loan works: The lender increases the interest rate to cover all the costs associated with the transaction. So on your closing statement you’ll still see line items for underwriting, title, escrow, recording etc. however you’ll also see a credit large enough to cover all those fees.
It's important to think through all your options when deciding what's the best mortgage for you.
Additional Online Resources:
One of the best online mortgage resources to locate an experienced mortgage proffessional is Mortgage News Daily. The website offers a listing of professionals throughout the country who can assist in answering your questions and providing a quote. Another great online resource for locating a local mortgage proffesional is Lender411. They provide a lot of good information and you can ask experienced loan officers in your state questions about obtaining a new mortgage.
